Swimming with sharks

Calming these troubled economic waters wont be easy

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There was a time, not so long ago, when
adjustable-rate mortgages were just as unusual and as mysterious as cell
phones and state-sponsored lotteries. The notion that an interest rate could change during
the life of a mortgage loan seemed, well, unconventional and fraught with risk — for the borrower. But in 1981, when I first wrote about ARMs as a young
reporter, interest rates had already climbed to places that no one ever
expected, the country was in a serious recession, and the housing market
was at a standstill. Fast-forward to now, to our current recession —
and everybody’s talking about interest rates, housing values, and
mortgage lending. Specifically, the focus is on subprime-mortgage lenders
— the companies that started imploding last summer when so many
borrowers started defaulting. This collapse was bound to happen. These predatory
lenders had sucked in people who shouldn’t have been buying houses
— people with marginal credit, rocky job histories, and
paycheck-to-paycheck lives. They did it by offering low closing costs and
down payments, or none at all, plus low initial interest rates. Then they
whacked borrowers in the fine print — huge rate increases and
prepayment penalties. These practices were something this paper was
pointing out three years ago when we examined the problems with Ameriquest,
one of the nation’s leading subprime-mortgage lenders [see Rich Lord,
“Penalizing homeowners,” Jan. 27, 2005, available at
www.illinoistimes.com]. For the sharks who made these usurious and immoral
loans, there really wasn’t a downside — most just transferred
the risk to other investors. For the individual borrowers, the ones who
gambled and lost, it was a different story: They now face long years of
debt, wrecked credit, and even, in some cases, homelessness. The knee-jerk response is to immediately look for
ways to prop up this house of cards. That’s why political leaders are
rushing to embrace interest-rate cuts, tax rebates, and loan moratoriums.
It’s as though a little bit of government intervention, some tweaking
around the edges, could set everything right. These measures won’t be enough. They have all
the logic of somebody drowning in debt borrowing more money to pay off
creditors. Our economic problems are deep-seated and structural; they
won’t be fixed by an emergency meeting of the Federal Reserve Board
or a bill passed by Congress or even a new president. And you don’t have to be an economist to know
that that’s true. Just do what I did on Sunday. Go shopping. While I was wandering around Kmart on Wabash, I
briefly checked out the clothes on sale. I ended up buying two nice shirts
for $15. When I hung them in the closet, I noticed that they were both made
in Bangladesh. It made me curious: Is any shirt I own American-made? Not one. The labels tell
the story: India. Sri Lanka. The Philippines. Hong Kong. Korea. Twelve years ago, as a projects reporter for the
daily paper in Memphis, I was looking into the impact of Bill
Clinton’s North American Free Trade Agreement and tracking the
manufacturing jobs in our region that had been swept away. One of the
places I visited was Des Arc, a small community in eastern Arkansas where a
shirt factory had closed — the jobs were moved out of the United
States. I spoke to former workers, community leaders, and company
executives. “Obviously we’d prefer to make them in the
U.S.,” a company vice president told me, “but if the customers
won’t pay more for the shirts — then you’ve got to make
’em wherever you can make ’em and sell ’em.”The shirt company’s main customer was an
Arkansas-based retail giant everybody knows: the home of everyday low
prices. Wal-Mart was notorious for pushing suppliers to lower their costs,
and other retailers struggled to compete. The consequence? More and more
jobs were moved overseas, where people worked for a lot less.Arkansas, Bill Clinton’s home state, has seen
more than 50,000 manufacturing jobs disappear since the implementation of
NAFTA. All across the country, good private-sector union jobs have
disappeared, and real income for most Americans has stagnated. Think about
how many people you know, other than government workers, who have
meaningful benefits such as employer-provided health insurance or a
retirement plan. Yet, despite this generation-long decline in our
standard of living, we’ve managed to borrow the illusion of
prosperity and stability. We’ve acted against our very own interests
when we go to work, when we shop, and when we vote. Now the sharks are circling. There’s nobody to
protect us. And there’s nobody to blame — except ourselves. Contact Roland Klose at editor@illinoistimes.com